Agency.com Bides Its Time
by Kenneth A. Toudouze, CFA
11:31:00 AM November 29, 2000 GMT
Shares of Agency.com [ACOM: Nasdaq] have drifted lower as its Internet consultancy brethren continue to report layoffs and reorganization efforts. Despite stellar metrics and a bright outlook, Agency has moved to valuation parity (see table below) with its peers. We expect this situation to hold as the shakeout within the industry runs its course, and we maintain our cautious stance on Agency's shares.
Tuesday, consulting group iXL [IIXL: Nasdaq] announced it was letting go of one-third of its workforce and closing several international offices. These moves come of the heels of a large layoff and reorganization announced earlier this fall. With iXL’s pronouncement that it will focus on its top 75 clients, an already competitive environment stands to get even tougher.
Agency's strategy has been to shy away from much of the dot.com business its rivals embraced, focusing instead on blue-chip companies with which it could develop longer-term, stable relationships. This approach appears to be a winner, and its incumbency with the best client base should serve it well as the weaker members of the sector's flock attempt to move into the territory.
From a valuation standpoint, you can see below that Agency is basically trading at parity to group averages of the usual metrics. Look for the stock to begin moving -- presuming the presidential election ever gets decided and a recession does not occur -- once the year-end numbers are reported. At that point, the dichotomy between Agency and its weaker rivals will become more glaring.
In our view, those investors taking positions within the group will be more inclined to purchase the stronger names, including Agency.
Internet Consultants Ticker Company Recent Price (11/28/00) Mkt Cap (m) P/E 2000 P/E 2001 Price/
Sales Revenue (Last 12 Mo.) PEG 2000 PEG 2001
ELOY eLoyalty $6.00 $296.2 75.0 23.1 1.5 192 1.9 0.6
IIXL iXL $1.09 $82.8 - - 0.2 386 - -
LUMT Luminant Worldwide $1.00 $27.2 - 6.7 0.2 142 - 0.5
MRCH MarchFirst $1.06 $159.6 2.4 2.1 0.1 1,100 0.1 0.1
MMPT Modem Media $4.63 $113.4 - 14.5 0.9 124 - 0.4
RAZF Razorfish $3.06 $301.0 18.0 10.6 1.1 270 0.4 0.2
SAPE Sapient $18.50 $2,195.8 40.2 30.3 4.9 446 0.9 0.7
SCNT Scient $7.06 $517.3 28.2 13.3 1.7 302 - 0.4
VIAN Viant $3.94 $190.8 39.4 24.6 1.5 126 0.8 0.5
XPDR Xpedior $1.03 $52.7 - - 0.3 205 - -
Averages $393.7 33.9 15.7 1.3 329 0.8 0.4
ACOM Agency.com $6.13 $216.2 32.2 16.6 1.2 177 0.8 0.4
Market Timing
On Oct. 25, we said: "Technically, Agency.com [ACOM: Nasdaq] appears to have hit a bottom at $10. The decline has slowed and the falling 20-day moving average, which had provided resistance, is starting to flatten out. Also, MACD is suggesting a bullish turn as it starts to trend up. These conditions suggest that Agency should see a bounce to $15 in two to four weeks."
Support at $10 was lost, and Agency tumbled down. Trading volume on Wednesday was high, but prices barely moved. We see this stock trading between $5-1/2 and $6-1/2 for the next two to four weeks. A break of these limits will move the stock.
ideaadvisor.com
Sorry about the chart
Jack |
